In debt? Here's one simple solution: just throw in the towel

Focus: Rupert Wright phones a banker friend and, in doing so, discovers the key to solving Europe's crisis.

If Greece were to default on its debts and leave the euro zone, its new currency, presumably the drachma, would plummet. Louisa Gouliamaki / AFP

A friend of mine was declared bankrupt this week. And not just any old friend; not a nodding acquaintance who you might encounter on the golf course, or a fake Facebook friend, but somebody I first met in a biology class in the Upper Fourth aged 13.

With his cheeky grin and wicked laugh, he was a good ally as we set about making the teachers' lives miserable. Most of our contemporaries went on to overpaid jobs in the City; one even went to Moscow and made so much money that he hasn't worked for 10 years.

My friend also worked in the City for a while at a small merchant bank, but after a while he abandoned it and became a property developer.

Sometimes I would meet him and he would have a wodge of £50 notes in his pocket; at other times I would be forced to buy lunch and drinks. I was best man at his wedding. He's my third brother.

So I was rather saddened to hear that he is now bankrupt. It sounds so Dickensian: the workhouse can only be a step away. Who would I play golf with now on my visits to England? Would I have to look after one of his sons, my godson? Even worse, might he expect to borrow some money and never pay it back?

Despite these misgivings, I phoned him. How are you, I asked.

"Marvellous," he said. "Couldn't be better."

"No, really. What about all this bankruptcy stuff?"

And he explained. It turned out that he isn't quite as gloomy as it sounds.

He owed £46,000 (Dh268,848) to the taxman, a sum accumulated over a number of years. He offered £12,000, hoping the taxman would do a deal. But the taxman doesn't do deals; instead he made him bankrupt.

This meant that as well as writing off the £46,000, he also gets to write off £20,000 in credit card debts, and a further £60,000 in bank loans, and some further debts along the way. He doesn't even have to pay his council tax or outstanding parking tickets.

How did he accumulate so much debt?

"It's easy," he said. "Everyone here is in the same boat. It's so easy to borrow that everybody does."

He now is in the fortunate position of having all his debts erased, as if by a stroke of good fortune. It is rather like picking out the right Chance card in a game of Monopoly. Instead of going to prison he has proceeded to Go. He may not have collected £400, but he has managed to write off £150,000 or so.

"It's like nothing has happened, except that I don't have any more debt."

He gets to keep the house, because it is in negative equity - the result of borrowing money against it, a sum that has now been written off. The BMW is in his mother's name.

Bankruptcy is not quite the nasty situation that one imagines any more. You don't languish in a debtor's jail, at least not in England.

It lasts for a year, during which he is not allowed to borrow from a bank or to be a director of a company.

But otherwise he has got off scot-free. He doesn't even need to think about paying tax until April 2013. He doesn't think it's fair, but that's the system.

It makes one wonder why everyone doesn't do it. Greece, of course, would like to do it, as would Italy and the rest of the heavily indebted euro zone.

The problem is that the consequences would be rather more severe. As William Rhodes, the legendary Citibank banker, once said: "Countries don't go bust." But they do run out of cash.

If Greece were to default on its debts and leave the euro zone, its new currency, presumably the drachma, would plummet, perhaps by as much as 70 per cent. This is what happened when I visited Argentina in 2002. It had de-pegged from the dollar.

Instead of being one-to-one with the greenback, it was suddenly trading at three-to-one. Even economic dunderheads like me could work out that it was good to shop and eat in Buenos Aires in those days. It almost made me want to tango.

There was social strife, there was inflation, but 10 or so years on, and the country is in much better shape for having reneged on its debts.

The answer is quite simple. The Piigs - Portugal, Italy, Ireland, Greece and Spain - should all be thanked for their interest in the European project, but be told that they didn't quite pass muster.

As a symbol of European solidarity, half their debts will be forgiven and the rest rescheduled over 1,000 years. Germany will bear the brunt of the pain, a small token of the misery it put the continent through in successive world wars in the previous century.

And that, they will say, is that. Guten tag and auf wiedersehen, Siesta States. If you snooze, you lose, but even somnambulists deserve a break every now and then.

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